After a shaky start to the week equity investors regain their poise

We may have felt a little premature on Monday morning suggesting that equity investors had enough of the fear factor instilled by the faltering trade talks, in the previous week, to allow equity markets to rally. However, since the further selloff on Monday and after the US equity market had reached almost 2800, a correction of around 6%. Equity investors have gathered their poise, and US equities are in line for their first three-day consecutive rise. Some of the recent economic data may have added some encouragement. The Philadelphia Fed Index came in above expectations. The index is a regional federal-reserve-bank index measuring changes in business growth, also known as the business outlook survey. There is some correlation between the index and the ISM readings. This would point to a recovery in the manufacturing index in the coming months. New home sales and jobless claims also appeared encouraging. Earnings from Cisco and Walmart aiding sentiment.

US economic data continues to offer a mixed picture as US Industrial Production disappointed to the downside.

The pound has once again taken a beating in the markets, below 1.3 to the US dollar back to 1.28. Brexit uncertainties according to the press, not sure when there were ever Brexit certainties. The only certainty was continued uncertainty. Theresa May seems determined to hang on by her fingernails to get her deal through. The recent weakness in sterling has helped the FTSE 100 join the rally.

Bonds remain well bid despite a slight improvement in equity sentiment as the US yield curve once again inverted. Two-year US treasury yields which traded close to 3% not so long ago, now only 2.16%. German ten-year bund yields -0.11 pct. Any investor buying German ten-year bunds is paying money to leave it with the German government. It was hard to understand in a healthy economic world how that can be justified. The yield curve inverting, using history as a guide would suggest we are six months from an economic recession, the implied probability the Fed will cut rates this year has risen once again to 80%.

Tensions in the Middle East has underpinned the oil price as Brent Crude traded back over 70 dollars a barrel. An increase in tensions in that region and a further spike in the oil price will have inflationary consequences and possibly limit the central bank’s hands over interest rates.

Despite the uncertainties over trade, Iran, Brexit and a mixed economic picture the Vix has fallen below 20, back to 15. To remind readers the historic lows are around 10, at times of great fear, 2008 being an example the reading has climbed to 80.